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Sunday, January 8, 2012

SPX, NYA, Dow Updates: Top in Sight; No New Bull Market on the Horizon Yet

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1) To bring up larger charts, right click the chart with your mouse and select "open in new" tab or window. The NYA chart is big.

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I've spent a lot of time this weekend examining charts, and rigorously challenging my assumptions regarding whether a new bull market could be starting or not. After studying the charts from as many angles as I could, including upside-down (well, more correctly: inverted), I remain of the long-term bearish persuasion.

I'm going to get right to the charts, because there's a lot of them. Again, I believe the top is either in already, or will be after one more lunge higher.

The first chart I'd like to share is a long-term chart of the NYSE Composite Index (NYA). For new readers, I often like to examine the NYA because it represents a very broad look at the market, unlike the popular SPX and Dow, which have been culled of many of the weaker common stocks.

This NYA chart presents some interesting results. I've drawn a Fibonacci fan from the 1994 low to the 2007 high. I chose 1994's low because it was the last important low before 1995, and I believe 1995 was (arguably) the start of the stock market bubble. Some may recall that 1995 was when Alan Greenspan gave his famous "irrational exuberance" speech. (That's my recollection, anyway. Maybe I should look it up. Nah, I've done enough this weekend.) ;)

Notice how those Fib fan lines have acted as support and resistance over time. The 2008 crash started with a violation of one of these Fib lines. In 2011, the market "returned to the scene of the crime" and backtested that same line from underneath. The 2011 decline started there, and was then caught by the lower Fib line.

In red, one can also see a huge potential triangle which has formed since the 2007 top. Volume has been falling steadily since 2007, which confirms the triangle pattern. The triangle implies a move of 60% (6205 points on a measured basis) from the breakout/breakdown level, at either the upper or lower trendline.

There is a trendline of some importance which is called-out as well. This trendline has acted as support and resistance for many years, and has been well-established with seven touches. The market is still living beneath this resistance zone.

The massive multi-year potential head and shoulders pattern is also noted.

I did examine this chart in logarithmic scale as well, and both scales yielded many similar results. I've selected the linear scale for presentation purposes.

Next is the long-term Dow chart, which shows some similarities between the current market and 2008. It also shows how the Dow is still beneath some very important resistance levels, and notes the formation of a bearish rising wedge off the October 2011 lows. The pattern is now complete, with the requisite four alternating touches of the upper and lower trendlines.

Rising wedges imply a rapid return to the start of the pattern once broken.

Next is the daily SPX chart, which shows the series of potential reversal candlesticks which formed last week -- right inside the target zone -- and notes some areas where similar candlesticks have occurred. Not shown, the DIA and SPY weekly charts both show weekly topping/reversal candlesticks, and if the market gapped down on Monday, this would create a potential island reversal top.

Next is the chart of the hourly preferred count, which still believes that either the top is in place already, or it will be very soon. The implication of this chart is that a massive top is, at most, only a few sessions away.

The next chart is an indicator chart I touched on the day after it triggered, but I want to take this opportunity to remind readers that this indicator is still "hanging" out there, unresolved. This indicator suggests that the market still "owes" us a lower low beneath 1248, where the signal was triggered.

The final chart is a look at some alternate short-term potentials for the market to resolve the Minor (2) top.
The chart below is not my preferred count, but is instead provided to help readers recognize some of the additional possibilities still remaining.

The chart is an attempt to "think outside the box" and suggests a few final waves to confuse technicians and throw them off the trail a bit. Some Elliotticians are suggesting that the move from 1284 to 1265 is a leading diagonal first wave. This is plausible, however the first wave of an impulse move generally should take out the next key low, which that move did not. This chart suggests that said move may have been a leading diagonal a-wave, as part of wave iv of the larger expanding ending diagonal (see black count).

The blue count suggests the same alternate discussed on Friday, of a more conventional five-wave move to complete wave c of (y) of Minor (2). The chart notes some invalidation levels (knockout levels) for each count.

In conclusion, I believe the evidence continues to point to lower prices over the long term. My short term opinion hasn't changed since Wednesday: either the top is in, or it's very close. The US Dollar seems to be confirming this view (See US Dollar Update).

I remain of the belief that the October lows will not hold, and that the market is within days of beginning the next leg down, which should move rapidly lower once it begins. Trade safe.

I looked at the chart in both linear and log, and believe it or not, they were quite similar. The difference in log scale is the first fib break is followed by the crash in '08, and the market retraces back to the 2nd line instead of the first.

t_winn has left a new comment on your post "SPX, NYA, Dow Updates: Top in Sight; No New Bull M...": PL, in the SPX chart, how much of a probability would you place on the black count vs the blue count?

LOL -- just like stocks! My ex-mother-in-law collected Beenie Babies, and I was quite bearish on them. I told her several times that Beenie Babies would crash spectacularly -- but alas I was ignored. :D

Pretzel, basic question - sorry about being so dense, but - On your chart #4 (for $SPX), assuming the top is already in and prices heads down right away as sketched by the left-side, downward pointing dotted arrow; where would that leave blue wave v? It will have a max height at a, which is *under* the top of iii. Is it legit to have wave v lower that wave iii? OK, if it's an ending diagonal, the max height of the ED is lower than wave iii?

Okay, I just got Ray's post in my e-mail, but again I don't see it on the thread. Does anyone see this post somewhere? Is it some problem w/ my system? If not, anybody know why t_winn and Ray's posts aren't showing?

Ray_1 has left a new comment on your post "SPX, NYA, Dow Updates: Top in Sight; No New Bull M...": Beautiful analysis PL and I'll get my short ready for action.Thank you so much.

NOTE TO EVERYONE: THIS SITE NOW REQUIRES THAT YOU REGISTER A LEGITIMATE EMAIL ACCOUNT THROUGH DISQUS IN ORDER TO POST. If your posts aren't showing up, I believe that's why. :)

Sorry for any inconvenience. Simply tired of dealing with the same BS over and over, and offenders will now be banned. They may be given 2nd chances with good behavior, but repeat offenses will earn permanent bans and 50 lashes with a wet noodle.

I guess I might as well ask. I drew a fib fan on a monthly S & P chart , and it seemed to work. It may be forming the mother of all H&S's, and, if so, we'd be headed for 150 S&P or so...damn! What do you think?

I would appreciate any insight into the VIX? Still dropping and doesn't look like its bottomed yet. VIX futures also still in contango. There is very little fear since Nov 28, so I wonder if that gives higher credence to the alternate/bullish count?

pdragoun has left a new comment on your post "SPX, NYA, Dow Updates: Top in Sight; No New Bull M...": Yes please, some comments and expectations regarding the near future path of the VIX would be greatly appreciated! Thanks!

3) How to Register: Enter a comment, click "Post as" -- a box will come up asking you to enter your email and password. If you don't already have a valid account, then select "Register a New Account" underneath the password box and follow the instructions. TY] :)

Hmm. Well, good work making it work! I'm sure people will figure it out.

I figured out how to get Ray and t_winn's comments to post -- Note to Ray and t_winn, you did everything fine. For some reason, Disqus auto-flagged your posts as being trouble. Well... I guess we all know you two ARE trouble! ;) Maybe I shouldn't have unflagged those posts...

Hi Pretzel. In your last post you'd mentioned a fellow you know who uses a moving average system and who has had a great deal of success as a trader. You mentioned that "He uses roughly a billion of them." lol

I've been doing the same thing off and on for aeons. I take it a step further though in that, since I want to see what the moving averages are telling me, I literally don't want to even see the price action itself. So I make the actual candlesticks invisible and have just the moving averages visible. Here's what it ends up looking like:http://stockcharts.com/h-sc/ui?s=$SPX&p=10&b=1&g=0&id=p92785431247&a=253169693

This is a 10 min. chart. So naturally I have a normal 10 minute chart to look at as well, and to use as I normally would, complete with the indicators I like, etc. But in order to really step away from the noise for a few minutes, I find nothing quite as refreshing as a chart that doesn't even show the actual price action, but instead shows a smoothed version of it all. And as a really good side benefit to any trader who gives such a system a whirl, the first thing he's going to discover is that very seldom is he going to get sucked in to a crazy overnight move and jump the gun too early. A system such as this will "stop traders from jumping the gun". That alone is worth the price of admission.

At first glance it might seem like all those moving averages in and of themselves are 'noise'. But they aren't. Hidden among them are favorites... or MAs that I find to be the most recognizable (to me) since they are common to all my 10 minute charts. For example, on the chart above, the 39 period MA is 'exactly' the one day moving average. The 78 period therefore is the two day MA and the 117 is the three day MA. The heavy white one is the 6 day. By recognizing all of these more important MAs, I don't get lost looking at them. It'll only take a user a few days to get used to so many MAs and then it just becomes a matter of his decision as to what it is that he considers as a buy or sell signal. Whatever he's comfortable with. I hope the idea helps somebody out there just a little bit in some way.

For those who might want to read a little bit more about moving average systems, here's a short commentary written by a contributor at Traderjidotcom. I think that at the very least your readers will find it a worth while read:http://www.traderji.com/technical-analysis/21-moving-average-trading-system.html

Very short term, the dollar looks like it's probably going to correct toward 80.6 - 81.1. After this correction is over through, it will probably go parabolic. Next target zone (after the correction) is 86.55-91. And that's just wave (iii) of iii of (3) ! There's a good chance it tops 100 before the year is out. I'll post a chart later.

I like Fibonacci too, some how I have autometed this calculation and I got the same results as in your analisys. From me you can get autometion of calculation, statisstics and so on but not anything more

morning folks - seems disqus says my username, "potus" is already in use so my don't discriminate against me for my slight variation in order to register. too bad - b/c i liked being able to click on the avatar and see prior comments. still like a move down this week - maybe after a short stab higher today with dollar retracing some - A LOT of debt being sold by Germany, US, Spain and Italy this week. Bernanke will need a good move lower to try and price $21billion at recent low yields - last hint he wants is a shitty bid to cover on a big US auction.

You mentioned last week that you arrived at your <26 target for TZA by using EWT. Was that EW analysis done on the RUT or TZA itself? I ask because I was under the impression that EWT isn't well suited for leveraged markets/instruments. Thanks.

Whip sawed, Don't mind you asking me at all. I charted everything under the sun, I did not look at just one thing (TZA) and am looking for a change in direction for the mrkt very soon. I determined that 26 was a bottom price for TZA and below that represented a good entry point. This is for me, may or may not work, nothing is guaranteed in the mrkt. Do your own charting. It the low is broken then I am wrong. Mine is an IT to LT position.

Good Morning PL. Having a heck of a time logging in a new account through Disqus, was registered through yahoo before. We'll see if this works. Worth the small hassle to see that you can now clean the board up. As entertaining parts of some posts were, most of those posts were distracting and immature. Great job on todays post too.

VIX opinion:I trade the vix but only for a couple of months, so please do you own homework and make your decisions based on what you think is best for you. Here are some general thoughts I consider when trading for these past and coming days. I would not do any naked shorts/calls. It is calm right now, but you do not want to get caught and lose your shirt; then you would truly be naked. ;)

Based on PL's last SPX chart, between today, the 9th, and until the 11th, there might be a gradual decline of the SPX for the preferred black count. Then it sky rockets up. Based on this pattern, I would say that you can count on shorting the VIX. From the 9th - 11th, there is not a steep enough dive; for the VIX, that can be seen as a gradual decline. That gradual decline plus time decay will eat away at the VIX. To have a meaningful move of the VIX, it has to be a steep up/down move in one day such as 20 - 30pts of the SPX. Without that, the VIX will continue to remain low or decline. Additionally, the SPX moves up btween the 10th - 11th, this would just cause the VIX again to remain low or decline further. So shorting VIX from now until the 11th may be a good bet.

If the alternet blue count happens, then you can short the VIX from now until the 13th, but I would close out on the 12th to be safe.

The general rule I follow is that if I expect the SPX moves to not be -10 or worse, then the VIX will remain down or decline further. That would mean a good shorting opportunity.

If you do not want to deal with too much risk, then I would say to wait for "THE" market dive to happen, and then wait for a vix top, and buy puts at that point. If you want to be risky and make twice as much potential profits, then you can try to buy VIX calls when "THE" dive happens, then close them out at the VIX top, and then buy VIX Puts.Again.............. I would not do any naked calls/puts at this point. Else you may end up with no cloths on your back. :)

My pleasure jbg (and matstery). Just trying to chip in from time to time. As you probably know, a MA system works best in a strongly trending market and some claim it to be of almost no value in a choppy market such as we've seen since early December. Yes, it's true that a MA system works better in a strongly trending market, but if we drill down to a 10 minute chart, then all the action since early Dec. "has been" strongly trending with tradeable swings in both directions. IOW, if a trader was so inclined, he could have been scalping quite effectively using smaller charts during that choppy action. It really boils down to what type of trading a person prefers to do, day trading, swing trading, or long term hold.

But once this kind of choppy action resolves one way or the other, the breakout is usually sharp. When you get on the right side of a larger trend line like the 26 day the ride can be very rewarding. And we use the smaller ones like the 3, 6 and 12 to get us there. It's "always" essential to be on the right side of the largest trend line you can handle, considering the "lateness" of the larger ones. For example, the 50 day is usually late by at least a week and sometimes two. It's late, but it will seldom whipsaw you. On the other hand, for day trading and swing trading purposes, much smaller moving averages can be just as effective. A moving average system doesn't always work, but it works better than anything else I've come up with. It will almost assuredly help a trader keep losses small and gains big... and that's how we make money in this goofy market. When it lines up with EWT, magic can happen. Best of success.

Don't know if he is still awake. I do not see a neckline drawn on his chart. This is what you do. Draw a neckline. Take top of head and subtract from it where a vertical from it would cross the drawn neckline. Then take that number and subtract it from the confirming cross point of neckline. That provides a tgt. Inverse h&s do the opposite.

I'm trying to find the link to a video that had a very nice graphic description of the banking system, central banks and fiat curency flows. Someone posted the link in the last month or so from a newsletter. It was a Powerpoint type presentation and a voiceover. If anyone has that link, I'd greatly appreciate it! Hopefully that wasn't too vague!

Thanks. Yes, I was thinking of that too, since in earnings season, one or two good reports can move things up a notch. Meaningless perhaps in the big picture, but would be a shame to lose the position entirely due to a glitch.

Following tradition, you would subtract the height from the head to the neckline from the neckline itself. Neckline (~4250) minus Head height (~6000) = Target (-1750). In other words, we are going to be living in caves eating our Beanie Babies.

It's a shame, too. I really thought those things would make a comeback if we didn't have to depend on them for survival.

Given that market action that breaks through that neckline cannot fulfill the H&S technical break, does it not follow that we will not in fact see such a break through the neckline? If so, the H&S on the graph is essentially meaningless.

5 min chart on Russell 2000 - RSI broke through downward trendline from Jan 6th - now using it as support. USD seems to want to give the retrace PL called for in his write-up this am. This could be the stab we have been looking for going into the close - scare shorts into covering after 3 LONG days of kissing 1280 ...

For what it's worth, this line of reasoning has worked before: Today is full moon and since trend recently has been up, everybody should be looney today and buying it up to the hilt. But today is flat. So in fact, today is a "virtual" down day, just deferred. Tomorrow, the moon starts wearing off rapidly. So by that logic, tomorrow should be a down day.

Discipline says I can't hold a full position overnight- so I have to sell flat, again, 5 days in a row. earnings, europe (again), and options exp are going to make this a really really tough market for a while

It's a complex H&S top and it is only visible on a regular market hours chart (no pre or post market action). The time zone is Eastern Time (Wallstreet time...). The left shoulder is the double top on 1/5. The head is a triple top from noon on 1/6 to 10:30AM on 1/7. The right shoulder is the rounding top from 11:15AM (today) to today's close.

Can anyone refer me to a newsletter or blog (free or pay) that recommends long & short plays on a daily basis? I have been searching for some time, but can't seem to find one whose technical analysis I tend to agree with.

Something to keep in mind is that the dollar was *lower* on average during the quarter which is going to be reported, which should help the bottom line of export companies like Apple, etc.. If the dollar continues higher, then this will work against them. If we accept the premise that the market looks "forward," then the smart money will begin pricing this in.

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